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The Never-Ending Hangover: How New York City's Pension Costs Threaten Its Future

The Never-Ending Hangover: How New York City's Pension Costs Threaten Its Future

Abstract

New York City’s pension contributions stand at a near-record 11% of the city’s total budget—and 35% of payroll alone. They consume 17% of city tax revenues, double the average proportion of the 1990s and early 2000s. Increasingly, city pension costs crowd out spending on other public services while limiting options for tax relief. Indeed, New York’s annual pension contributions will soon displace social services as the second-largest spending category in the city budget, behind only education, consuming more than 80 cents of every dollar raised by the city’s personal income tax.

New York City cannot afford to stand pat, accept current pension cost levels as a new normal, and hope for the best: when the next downturn strikes, it will inflate the pension deficit, creating even bigger burdens and more difficult choices. In the short term, New York should take two steps. First, reduce overoptimistic investment-return assumptions, as recommended by independent actuarial consultants in 2015. Second, tap into the large pots of money that the mayor has reserved for pay raises in the next round of contract settlements to fund the $655 million a year in required additional pension contributions.

E.J. McMahon is an adjunct fellow at the Manhattan Institute and research director of the Empire Center for Public Policy. Follow him on Twitter here.

Josh B. McGee is a senior fellow at the Manhattan Institute and vice president of public accountability at the Laura and John Arnold Foundation. In 2015, McGee was appointed to chair the Texas Pension Review Board by Governor Greg Abbott. Follow him on Twitter here.